Institutional investors in India are increasingly acknowledging and addressing climate change implications in their investment decisions
India's institutional investors are playing a significant role in the country's energy transition, with a growing focus on integrating climate risks and opportunities into their investment decisions. This shift is crucial for India's renewable energy goals set for 2030, as the nation grapples with the challenge of meeting its ambitious target of 50% energy demand from renewables.
Currently, institutional investors in India, including private sector companies, government agencies, and international organizations such as the Asian Development Bank and World Bank, are mobilizing capital towards renewable energy and green projects. The government has enabled 100% Foreign Direct Investment (FDI) in renewable power generation and distribution projects to attract more investment. Financing technologies like hydrogen, carbon capture, and other capital-intensive clean energy solutions are gaining traction, with the market for Green Social, Sustainability, and Sustainability-linked (GSSS) bonds expanding.
Institutional investors are adopting Environmental, Social, and Governance (ESG) frameworks and green finance strategies to align their portfolios with India's net-zero and renewable energy aspirations. This includes integrating sustainability due diligence, capital allocation towards low-carbon technologies, and portfolio optimization. India's Climate Finance Taxonomy offers a strategic hybrid framework to guide investments towards climate-friendly projects, further supporting institutional investors to evaluate and manage climate-related risks and opportunities effectively.
However, challenges such as grid constraints, supply chain bottlenecks, and the pace of renewable capacity additions pose risks to meeting the 2030 target exactly on schedule. S&P Global forecasts that India may reach the 500 GW renewable capacity target by around 2032, a slight delay from the original timeline. Innovations in grid flexibility, storage technologies, and renewable energy bundling are being pursued to enhance grid reliability and renewable energy integration, which institutional investors are supporting through their funding priorities.
India's institutional investors collectively represent $1.2 trillion in assets under management. By 2030, the Indian government expects 50% of energy demand to be serviced through renewables. AIGCC chief executive Rebecca Mikula-Wright commented that Indian investors are looking to the government to establish clear and ambitious energy policies that prioritize clean energy adoption. AIGCC findings highlight that short-term targets are yet to be set by India's institutional financiers. Internal climate policies are few and far between among India's institutional investors.
Suresh Prabhu, a former union minister of commerce and industry, stated that scaling up to 600 GW of non-fossil capacity by 2030 requires a future-ready policy and regulatory framework. The Commonwealth Climate and Law Initiative (CCLI) found some legal basis under Indian company law for investors to hold directors accountable for environmental protection. India's securities regulator - SEBI - announced mandatory climate disclosures for India's top 1000 listed companies beginning in 2022.
As India continues to grapple with climate change, with 2024 marking the country's warmest year on record since 1901, and its vulnerability to physical risks, including extreme weather events, increasingly evident, the role of institutional investors in driving the renewable energy transition becomes even more crucial. The decisions these investors make in the years to come will have a significant impact on which reality - coal or renewable energy - will dominate by 2030.
- Recognizing the vital role of institutional investors, India's environmental science sector is witnessing an increase in funds directed towards renewable energy and green projects, thanks to the adoption of green finance strategies and Environmental, Social, and Governance (ESG) frameworks.
- Amidst this transition, financing technologies like hydrogen, carbon capture, and other capital-intensive clean energy solutions are gaining traction in India's institutional finance landscape, with the growing popularity of Green Social, Sustainability, and Sustainability-linked (GSSS) bonds.
- The forthcoming years are crucial as institutional investors' decisions, influenced by factors such as climate risks and opportunities, will significantly influence whether India's energy future leans towards coal or renewables by 2030.
